Nanostructures of multiferroic materials have drawn increasing interest due to the enhanced magnetoelectric coupling and potential for next-generation multifunctional devices. Most of these structures are typically prepared by thin film evaporation approaches. Herein, however, we report a novel sol−gel-based process to synthesize epitaxial BaTiO<sub>3</sub>−CoFe<sub>2</sub>O<sub>4</sub> nanocomposite thin films <i>via</i> phase separation and enhanced heterogeneous nucleation. The magnetoelectric coupling effect is investigated by examining the temperature-dependent magnetization of the composite film, which manifests as a sharp and significant drop (>50%) of the magnetization at the vicinity of a BaTiO<sub>3</sub> ferroelectric phase transition. We propose that the phase transition in BaTiO<sub>3</sub> is mediated by the tensile strain due to intimate coupling to CoFe<sub>2</sub>O<sub>4</sub> phase, which has rarely been reported before. The significant coupling effect is attributed to the small substrate clamping, and the large areal distribution of intimate heteroepitaxial interfaces between the three-dimensionally distributed ferroelectric and magnetic nanostructured phases.